From the beginning of 1996 to the end of 1997, Jana Taylor's
company grew from seven employees to 35, while sales increased from
$5 million to $8.6 million. To many entrepreneurs, that kind of
growth would suggest trouble in the offing.

But for Taylor, 44, who started Jana's Classics Inc., a
Tualatin, Oregon, cookie bakery, at her kitchen table in 1984, an
emphasis on growth is part of the equation for success and
longevity. As her company blossomed from a single employee and
$7,000 in sales its first year to 100-plus employees and $13
million in sales in 1999, Taylor has embraced the attitude that
growth is good and the faster the better. "Our target this
year," she says, "is $18 million."

To reach that goal, Taylor juggles at least 40 new-product
development projects at any given time and introduces 40 to 60 new
products per year, adding to a portfolio of more than 400 varieties
of cookies, dough and related products. Meanwhile, she's
expanded the company from selling frozen dough in the Pacific
Northwest to providing baked cookies and dough to ice cream makers,
candy companies, restaurants, frozen dessert manufacturers and
in-store grocers nationwide.

Taylor's rapid-growth strategy is a smart one, according to
a recent study of high-growth firms by the Kauffman Center for
Entrepreneurial Leadership, a Kansas City, Missouri,
entrepreneurial education and research organization. A recent study
of 672 Ernst & Young Entrepreneur of the Year winners indicated
companies that maximized sales growth with strategies similar to
Taylor's, emphasizing new products and new markets, had 25
percent higher profitability and increased company net worth three
times faster than firms that focused specifically on profit growth,
cash flow or increasing net worth.

The results ran counter to prevailing wisdom that maximizing
sales is a strategy with a poor risk-to-reward ratio, says Larry W.
Cox, research manager for the 1998 study, which was released last
year. "There's a feeling that if you grow fast, it's
going to hurt profitability and wealth creation," says Cox.
"We found that's not necessarily so. Fast growth can be a
good thing."

Mark Henricks is an Austin, Texas, writer who specializes in
business topics and has written for Entrepreneur for 10
years.

What Makes Companies Grow

One striking finding from the study shows that firms that used a
market penetration strategy, trying to increase penetration of
their current markets by selling new products to existing
customers, didn't grow as fast or perform as well on other
measures as firms that stressed diversifying by introducing new
products to markets they'd never sold to before. The difference
was amazing: Companies following the diversification strategy grew
87 percent faster, on average, than those relying on penetration.
Businesses that tried to grow by mergers and acquisitions,
likewise, turned in poorer performances than those with an
aggressive diversification bent. These findings are rather
surprising, considering the record number of mergers and the
current popularity of con-servative stick-to-your-knitting
strategies.

An even bigger surprise was the low correlation of international
expansion with rapid sales growth. The report essentially
determined that companies boasting more international sales were no
more likely to grow rapidly than those that looked mainly at
domestic and regional markets. Going global, in other words, is not
a requirement for fast growth despite the widely held opinion to
the contrary. "The assumption I'd had going in was that if
you were going to grow, you'd have to go overseas," says
Cox. "But that was a surprisingly small part of it."

Sometimes your employees just need a little TLC. Read
"You're
My Hero" and learn how to play older sibling.

The study found a strong tie between rapid growth and certain
employee compensation practices. Connecting pay to incentives was
indeed a powerful growth-booster. In fact, the more importance
companies placed on incentive pay, measured as a ratio of incentive
to base pay, the stronger their sales growth.

A policy of giving stock to employees was also heavily connected
to sales growth. However, companies that offered stock only to the
CEO didn't get any benefit from the practice. Only when equity
participation is broadly spread are sales likely to be
supercharged. The study even found that the strongest sales growth
rates of all were from companies that gave stock to everyone but
the CEO. These companies reported 115 percent average growth,
compared to flat sales for those with CEO-only stock plans. This
connection was one of the strongest found in the study. Says Cox,
"The equity compensation was the big piece."

Variables That Make A Company Successful

There are a number of questions the study didn't answer. One
is whether the findings apply to all or even many other companies
besides the ones studied. The study companies were all finalists in
the Ernst & Young Entrepreneur of the Year award program.
"The sample was unusual in that it was the best of the best
entrepreneurial companies in the country," says Cox. "To
make a generalization to the business population as a whole is
difficult." In addition, only 20 percent of the firms studied
had under $5 million in sales in 1997, and 41 percent had more than
100 employees in 1995. Average sales were $89 million, and they
averaged 269 employees. About 20 percent were publicly held.

Another question the study failed to answer was whether firms
following the diversification strategy were turning their backs on
established, solid customers to pursue new markets, or whether they
were merely, in conformance with current mainstream strategy, being
selective and only getting rid of their worst customers. "Our
survey didn't distinguish that," says Cox. "We only
know they're doing more with new products and new
markets."

Additionally, Cox points out there are good reasons, other than
seeking growth, for entering international markets. These include
the opportunity to tap more attractive markets than exist
domestically and the chance to partner with foreign companies that
have attractive capabilities. And he doesn't discount the
importance of financial controls in fast-growth companies. He
notes, "Growing takes cash, so there's some cash-flow
management in there." Anecdotally, he says he found a pair of
similar companies, one which was growing at twice the rate of the
other and was flush with cash, and the other losing money and
seeing its net worth decline. "The reason was, they didn't
have the cash," Cox says of the problems besetting the
slower-growth firm.

According to the study, maximizing sales growth will take, in
addition to cash investments in new-product development and
marketing campaigns, significant loosening of ownership by a lot of
entrepreneurs. Most of the privately held companies surveyed failed
to offer equity compensation plans to the employees, and, overall,
just 3 percent of all equity was in the hands of people other than
top managers. "If you want to grow your business," chides
Cox, "you've got to loosen up on that and think about how
to distribute some of that equity value to the whole
company."

The last word on maximizing growth isn't in yet. Cox is
replicating the study, with additional questions on strategy, this
year. The big difference is that it will include firms from 18
countries. "It will be interesting," he says, "to
see if a German company has the same perspective on international
sales."

Meanwhile, cookie entrepreneur Taylor is hoping to focus
Jana's Classics more on the best markets she's tapped, and
perhaps to slow down her rapid growth of the past few years.
Bringing out new products and new production lines always impacts
short-term profits, she says. "We've been very satisfied
with our profits," she says. "But growth is tough.
I'm in a position to know that-luckily."

Take it easy,
speed racer! Read "Crash
Course" before trying to grow your business at maximum
velocity.